FOREX-Euro hovers near highs after euro zone inflation data

Wanfeng Zhou
Friday, 29 Nov 2013 | 9:50 AM ET

* Inflation data eases concerns about imminent ECB move

* Euro hits one-month high vs dollar, 3rd monthly gain

* Dollar hits 6-month high vs yen, up 4 pct in November

NEW YORK, Nov 29 (Reuters) - The euro traded near a five-year peak against the yen and a one-month high against the dollar on Friday after euro zone economic data dented speculation about further monetary easing by the European Central Bank.

Annual euro zone consumer price inflation rose by 0.9 percent in November, slightly more than economists had predicted, while further data revealed the first fall in euro zone unemployment in almost three years.

Analysts said this should be sufficient to ease the ECB's concerns about low inflation and may cause them to hold off from a further interest rate cut as early as next week to follow an unexpected rate cut earlier this month.

"Disinflationary pressures are still present, however there was no further deterioration, which will ease some of the pressure on the ECB," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

The euro rose to as high as $1.3621, according to Reuters data, the strongest since the end of October, before easing to $1.3604, little changed on the day.

The euro was also little changed at 139.16 yen, having earlier risen as high as 139.70, its strongest since the aftermath of the collapse of Lehman Brothers in late 2008.

Ulrich Leuchtmann, head of currency research at Commerzbank in Frankfurt, said the euro may rise a little further but any gains would be limited before the ECB policy decision and news conference by ECB President Mario Draghi next week. He expected the euro to stabilize at $1.35-$1.36 into year-end.

Against the yen, traders said they expected the euro to face stiff chart resistance on the approach to the psychological 140-yen level.

On the month, the euro was on track for a gain of 0.2 percent against the dollar, its third straight month of advances. It rose 4.1 percent against the yen, on track for the best monthly performance since April.

The dollar hit a six-month high of 102.60 yen and was last flat at 102.29 yen. It was on pace for a gain of 4 percent in November, the largest monthly rise since January.

Analysts expect the yen to continue to weaken on expectations of loose monetary policy in Japan. By contrast, the Federal Reserve is expected to begin reducing its stimulus, most likely early next year.

"The downtrend in the yen is definitely still in place ... It is difficult to see why people would be buying the yen, unless there is risk aversion and lower equity markets," said Niels Christensen, currency strategist at Nordea in Copenhagen.

The euro is up nearly 22 percent on the year against the yen. It has risen around 6.5 percent since the ECB unexpectedly cut interest rates on Nov. 7.

A Reuters poll on Friday showed Japanese fund managers in November raised their euro zone bond weightings to their highest since March 2011.

Japan's core consumer inflation accelerated to a five-year high of 0.9 percent in October, adding to evidence that it is beating deflation. But this still left Japan with a long way to reach its inflation target of 2 percent, suggesting the BOJ may need to ease policy again next year.

"Dollar/yen can go higher ... Japan needs a trend of a weakening yen," Commerzbank's Leuchtmann said.

Sterling rose to an 11-month high of $1.6375 against the dollar and a five-year peak against the yen after the Bank of England unexpectedly scaled back housing sector stimulus on Thursday.

Traders took the move as confirmation of the BoE's confidence in the economic outlook and of their expectations that the BoE was moving closer to raising interest rates.

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